SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10Q
[ X ] Quarterly report pursuant to Section 13 or 15 (d) of the
Securities Exchange Act of 1934
For quarterly period ended JULY 31, 1995 or
[ ] Transition report pursuant to Section 13 or 15 (d) of the Securities
Exchange Act of 1934
For the transition period from to
Commission file number 1-8551
Hovnanian Enterprises, Inc.
(Exact name of registrant as specified in its charter)
Delaware 22-1851059
(State or other jurisdiction or (I.R.S. Employer
incorporation or organization) Identification No.)
l0 Highway 35, P.O. Box 500, Red Bank, N. J. 07701
(Address of principle executive offices)
908-747-7800
(Registrant's telephone number, including area code)
Same
(Former name, former address and former fiscal year, if changed
since last report)
Indicate by check mark whether the registrant (l) has filed all reports
required to be filed by Sections l3 or l5(d) of the Securities Exchange Act of
l934 during the preceding l2 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes [ X ] No [ ]
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date. 15,367,322 Class A
Common Shares and 8,361,479 Class B Common Shares were outstanding as of
August 25, 1995.
HOVNANIAN ENTERPRISES, INC.
FORM 10Q
INDEX
PAGE NUMBER
PART I. Financial Information
Item l. Consolidated Financial Statements:
Consolidated Balance Sheets at July 31,
1995 (unaudited) and October 31, 1994 3
Consolidated Statements of Income for the
three and nine months ended July 31, 1995
and 1994 (unaudited) 5
Consolidated Statements of Stockholders' Equity
for the nine months ended July 31, 1995
(unaudited) 6
Consolidated Statements of Cash Flows
for the nine months ended July 31, 1995
and 1994 (unaudited) 7
Notes to Consolidated Financial
Statements (unaudited) 8
Item 2. Management's Discussion and Analysis
of Financial Condition and Results
of Operations 10
PART II. Other Information
Item 6(a). Exhibit 27 - Financial Data Schedules
Item 6(b). No reports on Form 8K have been filed during
the quarter for which this report is filed.
Signatures 18
HOVNANIAN ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In Thousands)
July 31, October 31,
ASSETS 1995 1994
----------- -----------
Homebuilding:
Cash and cash equivalents......................... $ 11,315 $ 17,299
----------- -----------
Inventories - At cost, not in excess of net
realizable value:
Sold and unsold homes and lots under
development.................................... 419,909 328,961
Land and land options held for future
development or sale........................... 64,973 57,579
----------- -----------
Total Inventories............................. 484,882 386,540
----------- -----------
Receivables, deposits, and notes.................. 30,263 25,778
----------- -----------
Property, plant, and equipment - net.............. 12,763 11,437
----------- -----------
Prepaid expenses and other assets................. 36,716 26,757
----------- -----------
Total Homebuilding............................ 575,939 467,811
----------- -----------
Financial Services:
Cash and cash equivalents......................... 219 138
Mortgage loans held for sale...................... 22,712 29,459
Other assets...................................... 1,640 1,451
----------- -----------
Total Financial Services...................... 24,571 31,048
----------- -----------
Investment Properties:
Rental property - net............................. 58,527 56,181
Property under development or held for future
development..................................... 16,012 15,298
Investment in and advances to unconsolidated
joint venture................................... 3,673 3,994
Other assets...................................... 4,463 3,231
----------- -----------
Total Investment Properties................... 82,675 78,704
----------- -----------
Collateralized Mortgage Financing:
Collateral for bonds payable...................... 19,155 21,275
Other assets...................................... 1,029 1,404
----------- -----------
Total Collateralized Mortgage Financing....... 20,184 22,679
----------- -----------
Income Taxes Receivable - Including deferred tax
benefits.......................................... 12,454 12,683
----------- -----------
Total Assets........................................ $715,823 $612,925
=========== ===========
See notes to consolidated financial statements.
HOVNANIAN ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In Thousands)
July 31, October 31,
LIABILITIES AND STOCKHOLDERS' EQUITY 1995 1994
---------- ----------
Homebuilding:
Nonrecourse land mortgages.......................... $ 24,783 $ 26,938
Accounts payable and other liabilities.............. 50,465 42,586
Customers' deposits................................. 19,599 12,138
Nonrecourse mortgage secured by operating property.. 2,914 2,946
---------- ----------
Total Homebuilding............................... 97,761 84,608
---------- ----------
Financial Services:
Accounts payable and other liabilities.............. 689 772
Mortgage warehouse line of credit................... 17,179 20,554
---------- ----------
Total Financial Services......................... 17,868 21,326
---------- ----------
Investment Properties:
Accounts payable and other liabilities.............. 1,917 1,731
Nonrecourse mortgages secured by rental property.... 31,589 17,541
---------- ----------
Total Investment Properties...................... 33,506 19,272
---------- ----------
Collateralized Mortgage Financing:
Accounts payable and other liabilities.............. 14 15
Bonds collateralized by mortgages receivable........ 18,499 20,815
---------- ----------
Total Collateralized Mortgage Financing.......... 18,513 20,830
---------- ----------
Notes Payable:
Revolving credit agreement.......................... 176,200 99,200
Subordinated notes.................................. 200,000 200,000
Accrued interest.................................... 6,270 5,559
---------- ----------
Total Notes Payable............................. 382,470 304,759
---------- ----------
Total Liabilities............................... 550,118 450,795
---------- ----------
Stockholders' Equity:
Preferred Stock,$.01 par value-authorized 100,000
shares; none issued
Common Stock,Class A,$.01 par value-authorized
87,000,000 shares; issued 15,308,904 shares
(including 345,874 shares held in Treasury)....... 153 149
Common Stock,Class B,$.01 par value-authorized
13,000,000 shares; issued 8,419,897 shares
(including 345,874 shares held in Treasury)....... 84 88
Paid in Capital..................................... 33,935 33,858
Retained Earnings................................... 136,832 133,334
Treasury Stock - at cost............................ (5,299) (5,299)
---------- ----------
Total Stockholders' Equity............................ 165,705 162,130
---------- -----------
Total Liabilities and Stockholders' Equity............ $715,823 $612,925
========== ===========
See notes to consolidated financial statements.
HOVNANIAN ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In Thousands Except Per Share Data)
Three Months Ended Nine Months Ended
July 31, July 31,
------------------ ------------------
1995 1994 1995 1994
-------- -------- -------- --------
Revenues:
Homebuilding:
Sale of homes........................ $163,375 $119,074 $420,656 $477,500
Land sales and other revenues........ 4,835 2,016 12,130 7,626
-------- -------- -------- --------
Total Homebuilding.................. 168,210 121,090 432,786 485,126
Financial Services..................... 1,897 1,460 4,721 5,681
Investment Properties.................. 2,524 2,059 7,010 7,240
Collateralized Mortgage Financing...... 522 937 1,516 2,532
-------- -------- -------- --------
Total Revenues........................... 173,153 125,546 446,033 500,579
-------- -------- -------- --------
Expenses:
Homebuilding:
Cost of sales........................ 132,173 97,988 340,783 379,513
Selling, general and administrative.. 22,147 15,320 55,403 47,792
-------- -------- -------- --------
Total Homebuilding................. 154,320 113,308 396,186 427,305
Financial Services..................... 2,413 1,885 6,524 5,721
Investment Properties.................. 1,380 1,586 4,355 4,784
Collateralized Mortgage Financing...... 553 1,130 1,609 2,967
Corporate General and Administration... 2,798 4,039 9,023 9,594
Interest............................... 7,214 4,929 18,640 17,493
Other operations....................... 1,404 2,056 5,104 6,034
Provision for loan writedown........... 1,883
-------- -------- -------- --------
Total Expenses........................... 170,082 128,933 441,441 475,781
-------- -------- -------- --------
Income(Loss) Before Income Taxes......... 3,071 (3,387) 4,592 24,798
-------- -------- -------- --------
State and Federal Income Taxes:
State.................................. 383 546 889 821
Federal................................ 603 (1,228) 205 7,298
-------- -------- -------- -------
Total Taxes.............................. 986 (682) 1,094 8,119
-------- -------- -------- -------
Net Income(Loss)......................... $ 2,085 $ (2,705) $ 3,498 $ 16,679
======== ======== ======== ========
Earnings Per Common Share................ $ .09 $ (.12) $ .15 $ .73
======== ======== ======== ========
See notes to consolidated financial statements.
HOVNANIAN ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Dollars In Thousands)
A Common Stock B Common Stock
------------- ------- --------------------
Shares Shares
Issued and Issued and Paid-In Retained Treasury
Outstanding Amount Outstanding Amount Capital Earnings Stock Total
----------- -------- ----------- -------- ------- --------- --------- --------
Balance, October 31, 1994... 14,730,299 $149 8,291,754 $88 $33,858 $133,334 $(5,299) $162,130
Sale of common stock under
employee stock option
plan...................... 15,000 77 77
Conversion of Class B to
Class A common Stock...... 217,731 4 (217,731) (4)
Net Income.................. 3,498 3,498
----------- -------- ----------- -------- ------- --------- --------- --------
Balance, July 31, 1995...... 14,963,030 $153 8,074,023 $84 $33,935 $136,832 $(5,299) $165,705
=========== ======== =========== ======== ======== ========= ========= ========
See notes to consolidated financial statements.
HOVNANIAN ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
Nine Months Ended
July 31,
---------------------
1995 1994
---------- ----------
Cash Flows From Operating Activities:
Net Income.............................................. $ 3,498 $ 16,679
Adjustments to reconcile net income to net cash
used in operating activities:
Depreciation....................................... 3,033 2,326
Loss (gain) on sale and retirement of property
and assets....................................... 59 908
Writedown of loan from sale of subsidiary.......... 1,883
Deferred income taxes.............................. 3,634 390
Decrease (increase) in assets:
Escrow cash...................................... (1,407) 2,056
Receivables, prepaids and other assets........... (15,596) (2,880)
Mortgage notes receivable........................ 5,751 (5,608)
Inventories...................................... (98,342) (33,910)
Increase (decrease) in liabilities:
State and Federal income taxes................... (3,405) (2,092)
Customers' deposits.............................. 7,540 (5,570)
Interest and other accrued liabilities........... (1,305) (5,342)
Post development completion costs................ (2,657) 65
Accounts payable................................. 12,575 3,831
---------- ---------
Net cash used in operating activities.......... (86,622) (27,264)
---------- ---------
Cash Flows From Investing Activities:
Proceeds from sale of property and assets.............. 1,046 5,665
Investment in property and assets...................... (1,326) (7,128)
Purchase of property................................... (2,689) (2,400)
Investment in and advances to unconsolidated affiliates 331 (1,406)
Investment in income producing properties.............. (4,438) (1,026)
---------- ---------
Net cash used in investing activities.......... (7,076) (6,295)
---------- ---------
Cash Flows From Financing Activities:
Proceeds from mortgages and notes...................... 763,129 519,688
Principal payments on mortgages and notes.............. (679,959) (495,568)
Principal payments on subordinated debt................ (2,160)
Investment in mortgage notes receivable................ 3,651 11,464
Proceeds from sale of stock............................ 77
---------- ---------
Net cash provided by financing activities...... 86,898 33,424
---------- ---------
Net Decrease In Cash..................................... (6,800) (135)
Cash Balance, Beginning Of Period........................ 14,537 3,001
---------- ---------
Cash Balance, End Of Period.............................. $ 7,737 $ 2,866
========== ==========
See notes to consolidated financial statements.
HOVNANIAN ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
1. The consolidated financial statements, except for the October 31, 1994
consolidated balance sheets, have been prepared without audit. In the opinion
of management, all adjustments for interim periods presented have been made,
whichinclude only normal recurring accruals and deferrals necessary for a fair
presentation of consolidated financial position, results of operations, and
changes in cash flows. Results for the interim periods are not necessarily
indicative of the results which might be expected for a full year.
2. Interest costs incurred, expensed and capitalized were:
Three Months Ended Nine Months Ended
------------------- ------------------
7/31/95 7/31/94 7/31/95 7/31/94
-------- -------- -------- --------
(Dollars in Thousands)
Interest Incurred (1):
Residential (3).................. $ 8,448 $ 5,435 $ 23,683 $ 15,618
Commercial(4).................... 1,305 1,271 4,095 3,770
-------- -------- -------- --------
Total Incurred................. $ 9,753 $ 6,706 $ 27,778 $ 19,388
======== ======== ======== ========
Interest Expensed:
Residential (3).................. $ 5,858 $ 3,674 $ 14,690 $ 13,917
Commercial (4)................... 1,356 1,255 3,950 3,576
-------- -------- -------- --------
Total Expensed................ $ 7,214 $ 4,929 $ 18,640 $ 17,493
======== ======== ======== ========
Interest Capitalized at
Beginning of Period.............. $ 35,831 $ 27,553 $ 29,480 $ 27,925
Plus Interest Incurred............. 9,753 6,706 27,778 19,388
Less Interest Expensed............. 7,214 4,929 18,640 17,493
Less Charges to Reserves........... 73 66 321 201
Less Sale of Assets................ 355
-------- -------- -------- --------
Interest Capitalized at
End of Period ................... $ 38,297 $ 29,264 $ 38,297 $ 29,264
======== ======== ======== ========
Interest Capitalized at
End of Period (5):
Residential(3)................... $ 31,922 $ 23,326 $ 31,922 $ 23,326
Commercial(2).................... 6,375 5,938 6,375 5,938
-------- -------- -------- --------
Total Capitalized.............. $ 38,297 $ 29,264 $ 38,297 $ 29,264
======== ======== ======== ========
(1) Does not include interest incurred by the Company's mortgage and finance
subsidiaries.
(2) Does not include a reduction for depreciation.
(3) Represents acquisition interest for construction, land and development
costs which is charged to interest expense.
(4) Represents interest allocated to or incurred on long term debt for
investment properties and charged to interest expense.
(5) Capitalized commercial interest at July 31, 1995 includes $257,000
reported at October 31, 1994 as capitalized residential interest. This
reclassification was the result of the transfer of two senior citizen
rental facilities from inventory.
3. Included in the consolidated balance sheets is total operating property
amounting to $26,429,000 and $23,740,000 and accumulated depreciation on
operating property amounting to $13,288,000 and $11,854,000 at July 31, 1995
and October 31, 1994, respectively. Accumulated depreciation on rental property
amounted to $8,958,000 and $7,781,000 at July 31, 1995 and October 31, 1994,
respectively.
4. On May 10, 1994, the Board of Directors of the Company adopted a
resolution providing that the date for the year end of the fiscal year of the
Company be changed from the last day of February to October 31. Prior to
October 31, 1994 the Company filed the reports covering the three month period
ended May 31, 1994 and the three and six month periods ended August 31, 1994
on Form 10-Q. The report covering the eight month transition period of March
1 through October 31, 1994 was filed on Form 10-K. Thereafter, the Company
will file reports on January 31, April 30, July 31, and October 31.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
CAPITAL RESOURCES AND LIQUIDITY
The Company's uses for cash during the nine months ended July 31, 1995 were
for operating expenses, seasonal increases in housing inventories, construction,
income taxes, and interest. The Company provided for its cash requirements
from the revolving credit facility, land purchase notes, and from housing and
other revenues. The Company believes that these sources of cash are sufficient
to finance its working capital requirements and other needs.
The Company's bank borrowings are made pursuant to a revolving credit
agreement (the "Agreement") that provides a revolving credit line of up to
$225,000,000 (the "Revolving Credit Facility") through March 1998. Interest is
payable monthly and at various rates of either prime plus 1/2% or Libor plus
2%. The Company currently is in compliance and intends to maintain compliance
with its covenants under the Agreement. As of July 31, 1995, borrowings
under the Agreement were $176,200,000.
The aggregate principal amount of subordinated indebtedness issued by the
Company and outstanding as of October 31, 1994 was $200,000,000. Annual
sinking fund payments of $20,000,000 are required in April 2000 and 2001 with
additional payments of $60,000,000 and $100,000,000 due in April 2002 and June
2005, respectively.
The Company's mortgage banking subsidiary borrows under a bank warehousing
arrangement. Other finance subsidiaries formerly borrowed from a multi-
builder owned financial corporation and a builder owned financial corporation to
finance mortgage backed securities, but in fiscal 1988 decided to cease
further borrowing from multi- builder and builder owned financial corporations.
These non-recourse borrowings have been generally secured by mortgage loans
originated by one of the Company's subsidiaries. As of July 31, 1995, the
aggregate principal amount of all such borrowings was $35,678,000.
The book value of the Company's residential inventories, rental
condominiums, and commercial properties completed and under development
amounted to the following:
July 31, October 31,
1995 1994
------------ ------------
Residential real estate inventory.......... $484,882,000 $386,540,000
Residential rental property................ 13,862,000 8,158,000
------------ ------------
Total Residential Real Estate............ 498,744,000 394,698,000
Commercial properties...................... 60,677,000 63,321,000
------------ ------------
Combined Total........................... $559,421,000 $458,019,000
============ ============
Total residential real estate increased $104,046,000 during the nine
months ended July 31, 1995 primarily as a result of an inventory increase of
$98,342,000. The increase in residential real estate inventory was primarily
due to the Company's seasonal increase in construction activities for
deliveries later this year, and the Company's overall increase in housing
volume. Substantially all residential homes under construction or completed
and included in real estate inventory at July 31, 1995 are expected to be
closed during the next twelve months. The Company's residential rental
property increased primarily due to the Company's completion of a second senior
citizen rental complex consisting of 75 homes. The Company expects to
receive federal tax credits on this rental complex. Most residential real
estate completed or under development is financed through the Company's line
of credit and subordinated indebtedness.
The following table summarizes housing lots in the Company's active selling
communities under development:
(1) (2)
Contracted Remaining
Commun- Approved Homes Not Home Sites
ities Lots Closed Closed Available
------- -------- ------ ---------- ---------
July 31, 1995..... 89 15,728 4,519 2,164 9,045
October 31, 1994... 86 17,033 5,302 1,794 9,937
(1) Includes 47 and 88 lots under option at July 31, 1995 and October 31, 1994,
respectively.
(2) Of the total home lots available, 578 and 641 were under construction or
complete (including 147 and 115 models and sales offices) and 2,381 and 2,554
were under option at July 31, 1995 and October 31, 1994, respectively.
In addition, in substantially completed or suspended developments the
Company owned or had under option 372 and 332 home lots at July 31, 1995 and
October 31, 1994, respectively. The Company also controls a supply of land
primarily through options for future development. This land is consistent with
anticipated home building requirements in its housing markets. At July 31, 1995
the Company controlled such land to build 12,757 proposed homes, compared to
12,696 homes at October 31, 1994.
The Company's commercial properties represent long-term investments in
commercial and retail facilities completed or under development (see
"Investment Properties" under "Results of Operations"). When individual
facilities are completed and substantially leased, the Company will have the
ability to obtain long-term financing on such properties. At July 31, 1995,
the Company had longterm non-recourse financing aggregating $31,589,000 on
six commercial facilities, an increase from October 31, 1994, due to
financing obtained for two New Jersey and two Florida facilities amounting to
$14,200,000 offset by $152,000 in principal amortization.
The collateralized mortgages receivable are pledged against non-recourse
collateralized mortgage obligations. Residential mortgages receivable amounting
to $18,244,000 and $23,460,000 at July 31, 1995 and October 31, 1994,
respectively, are being temporarily warehoused and awaiting sale in the
secondary mortgage market. The balance of such mortgages is being held as an
investment by the Company. The Company may incur risk with respect to mortgages
that are delinquent, but only to the extent the losses are not covered by
mortgage insurance or resale value of the house. Historically, the Company
has incurred minimal credit losses.
RESULTS OF OPERATIONS FOR THE THREE AND NINE MONTHS ENDED JULY 31, 1995
COMPARED TO THE THREE AND NINE MONTHS ENDED JULY 31, 1994
The Company's operations consist primarily of residential housing
development and sales in its Northeast Region (comprising primarily of New
Jersey and eastern Pennsylvania), North Carolina, southeastern Florida, metro
Washington, D.C. (northern Virginia), and southern California. Operations
in California began for the first time during the summer of 1994. In
addition, the Company develops and operates commercial properties as long-
term investments in New Jersey, and, to a lesser extent, Florida.
On May 10, 1994, the Board of Directors of the Company adopted a resolution
providing that the date for the year end of the fiscal year of the Company be
changed from the last day of February to October 31. The reports covering the
three month periods ended May 31, 1994 and August 31, 1994 were filed on Form
10Q. The report covering the eight month transition period of March 1, 1994
through October 31, 1994 was filed on Form 10-K. Thereafter, the Company will
file reports as of January 31, April 30, July 31, and October 31.
Historically, the Company has realized a substantial portion of its net
income in the fourth quarter of the year. As an example, in the old fiscal
year ended February 28, 1994, the Company's fourth quarter net income was $11.4
million or 61.0% of the year's total. The Company still expects the fourth
quarter to show a larger portion of the new fiscal year ended October 31 net
income, and the first three quarters to show a small portion of the year's
net income.
As a result of the year end change noted above, the first three quarters of
the fiscal year ending October 31, 1995 is being primarily compared to November
1993 and the old fourth quarter ended February 28, 1994. Since the home sales
revenue volume is significantly lower for the nine months ended July 31,
1995, certain comparisons (primarily overheads) to the nine months ended July
31, 1994 will be unfavorable and misleading.
At July 31, 1995 the Company's home contract backlog for future delivery
was 2,259 homes, with an aggregate sales value of $407.3 million, compared to
2,040 homes, with an aggregate sales value of $320.3 million at the same time
last year. For the nine months ended July 31, 1995 net contracts signed
amounted to $491.6 million or 2,951 homes, compared to $380.1 million or
2,552 homes for the same period last year.
Total Revenues:
Revenues for the three months ended July 31, 1995 increased $47.6 million or
37.9%, compared to the same period last year. This was a result of increased
revenues from sale of homes of $44.3 million, a $2.8 million increase in land
sales and other homebuilding revenues, a $0.4 million increase in financial
services revenues, and a $0.5 million increase in investment properties
revenues. These increases were partially offset by a $0.4 million decrease
in collateralized mortgage financing revenues.
Revenues for the nine months ended July 31, 1995 decreased $54.5 million or
10.9%, compared to the same period last year. This was a result of decreased
revenues from sale of homes of $56.8 million, a $1.0 million decrease in
financial services revenues, a $0.2 million decrease in investment properties
revenues, and a $1.0 million decrease in collateralized mortgage financing
revenues. These decreases were partially offset by a $4.5 million increase
in land sales and other homebuilding revenues.
Homebuilding:
Sale of homes revenues increased $44.3 million or 37.2% during the three
months ended July 31, 1995 and decreased $56.8 million, or 11.9% during the
nine months ended July 31, 1995, compared to the same periods last year.
Sale of homes revenues are recorded at the time each home is delivered and
title and possession have been transferred to the buyer.
Information on homes delivered by market area is set forth below:
Three Months Ended Nine Months Ended
July 31, July 31,
------------------ -----------------
1995 1994 1995 1994
-------- -------- -------- -------
(Dollars in Thousands)
Northeast Region:
Housing Revenues..... $101,431 $ 66,054 $263,840 $325,495
Homes Delivered...... 610 443 1,513 2,028
North Carolina:
Housing Revenues..... $ 29,670 $ 27,934 $ 74,338 $ 76,449
Homes Delivered...... 188 201 471 568
Florida:
Housing Revenues..... $ 14,037 $ 15,298 $ 43,885 $ 44,460
Homes Delivered...... 96 108 295 344
Metro Washington, D.C.:
Housing Revenues..... $ 12,335 $ 8,964 $ 26,242 $ 29,785
Homes Delivered...... 58 49 135 167
California:
Housing Revenues..... $ 5,902 -- $ 11,162 --
Homes Delivered...... 28 -- 55 --
Other:
Housing Revenues..... $ -- $ 824 $ 1,189 $ 1,311
Homes Delivered...... -- 13 33 21
Totals:
Housing Revenues..... $163,375 $119,074 $420,656 $477,500
Homes Delivered...... 980 814 2,502 3,128
The three months ended July 31, 1995 increase in sale of homes revenues
(compared to the prior year) was primarily due to the increase in the number
of homes sold and subsequently delivered. The nine months ended July 31,
1995 decrease in sale of homes revenues (compared to the prior year) was due
to the Company's change in year end. Average sales prices have increased from
$152,653 for the nine months ended July 31, 1994 to $168,128 for the nine
months ended July 31, 1995. In the Northeast Region one reason average sales
prices are increasing is because of the Company's diversified product mix of
more detached single family homes and larger townhouses with garages designed
for the move-up buyer. In Florida, average sales prices are increasing as a
result of the addition of new higher priced single family developments. In
North Carolina, average sales prices increased primarily due to the addition of
higher priced communities. In Metro Washington, D.C. average sales prices
increased because there was a higher percentage of single family detached
homes delivered.
Cost of sales include expenses for housing and land and lot sales. A
breakout of such expenses for housing sales and housing gross margin is set
forth below:
Three Months Ended Nine Months Ended
July 31, July 31,
--------------------- --------------------
1995 1994 1995 1994
--------- --------- --------- ---------
(Dollars in Thousands)
Sale of Homes...................$163,375 $119,074 $420,656 $477,500
Cost of Sales................... 128,615 97,903 335,322 377,892
--------- --------- --------- ---------
Housing Gross Margin............$ 34,760 $ 21,171 $ 85,334 $ 99,608
========= ========= ========= =========
Gross Margin Percentage......... 21.3% 17.8% 20.3% 20.9%
The Company sells a variety of home types in various local communities,
each yielding a different gross margin. As a result, depending on the mix of
both communities and of home types delivered, consolidated quarterly gross
margin will fluctuate up or down and may not be representative of the
consolidated gross margin for the year. The increase for the three months
ended July 31, 1995 was primarily due to a change in product mix with 62.1%
of the home sales coming from the Northeast Region where margins are higher,
compared to 55.5% for the same period last year. In addition, the Company's
product cost reduction efforts are starting to improve the gross margin. The
decrease in the gross margin for the nine months ended July 31, 1995 was
primarily due to the following reasons:
. Material costs have increased in all markets during the above
periods as demand increased for such materials.
. A change in product mix with an additional 5.6% of home sales
coming from North Carolina, Florida, Metro Washington D.C.,
and California where gross margins are lower.
. Increased competition in all markets which keeps prices and margins
down.
Selling, general, and administrative expenses increased $6.8 million and
$7.3 during the three and nine months ended July 31, 1995, respectively,
compared to the same periods last year. As a percentage of sale of homes
revenues such expenses increased to 13.6% and 13.2% for the three and nine
months ended July 31, 1995, respectively, from 12.9% and 10.1% for the prior
year. The three month increase in selling, general, and administrative
expenses in dollars is primarily due to increased deliveries and as a
percentage due to an increased number of communities open for sale, and
increased advertising and buyer concessions due to a more competitive sales
environment. The nine month increase as a percentage of sale of homes
revenues is the result of a lower volume due to the change in year end
(see year end comments above). The nine month increase in dollars is also
due to increased number of communities open for sale, and increased advertising
and buyer concessions due to a more competitive sales environment.
Land Sales and Other Revenues:
Land sales and other revenues consist primarily of land and lot sales,
title insurance activities, interest income, contract deposit forfeitures, and
California housing management operations.
A breakout of land and lot sales is set forth below:
Three Months Ended Nine Months Ended
July 31, July 31,
------------------ ------------------
1995 1994 1995 1994
-------- -------- -------- --------
Land and Lot Sales................... $ 3,109 $ 192 $ 6,415 $ 2,534
Cost of Sales........................ 3,558 85 5,461 1,621
-------- -------- -------- --------
Land and Lot Sales Gross Margin(Loss) $ (449) $ 107 $ 954 $ 913
======== ======== ======== ========
Land and lot sales are incidental to the Company's residential housing
operations and are expected to continue in the future but may significantly
fluctuate up or down. The loss for the three months ended July 31, 1995
primarily resulted from the writedown of lots in a small parcel of land in
New Jersey due to sales prices being lower than book value.
In May 1994, the Company purchased a homebuilding and management company in
California for $0.8 million. Although no new management contracts are being
obtained, the existing contracts resulted in $1.0 million and $0.8 million of
revenues for the nine months ended July 31, 1995 and 1994, respectively.
Included in Other Operations (see below) are expenses associated with the
California homebuilding management operations, and amortization of a portion
of the acquisition price of management contracts.
Financial Services
Financial services consists primarily of originating mortgages from sales
of the Company's homes, and selling such mortgages in the secondary market.
Approximately 30% and 20% of the Company's homebuyers obtained mortgages
originated by the Company's wholly-owned mortgage banking subsidiaries during
the years ended October 31, 1994 and 1993, respectively. For the three
months ended July 31, 1995 substantially all of the financial services loss
was the result of a mortgage valuation reserve. In August 1995 the Company
contracted to sell a substantial number of mortgages it was holding for
investment. As a result of the pending sale, in July 1995 the Company
established a $469,000 reserve against the carrying value of such mortgages.
In addition to the reserve, the balance of the loss for the nine months ended
July 31, 1995 was primarily due to expansion costs into other Company housing
markets, reduced volume, and reduced interest rate spreads, due to increased
competition. Most servicing rights on new mortgages originated by the
Company will be sold as the loans are closed.
Investment Properties
Investment Properties consist of rental properties, property management,
and gains or losses from sale of such property. At July 31, 1995, the
Company owned and was leasing two office buildings, three office/warehouse
facilities, three retail centers, and two senior citizen rental communities
in New Jersey. Investment Properties expenses do not include interest expense
which is reported below under "Interest."
Collateralized Mortgage Financing
In the years prior to February 29, 1988 the Company pledged mortgage loans
originated by its mortgage banking subsidiaries against collateralized mortgage
obligations ("CMO's"). Subsequently the Company discontinued its CMO program.
As a result, CMO operations are diminishing as pledged loans are decreasing
through principal amortization and loan payoffs, and related bonds are
reduced. In recent years, the Company has sold CMO pledged mortgages. The
cost of such sales and the write-off of unamortized issuance expenses has
resulted in losses.
Corporate General and Administrative
Corporate general and administration expenses includes the operations at
the Company's headquarters in Red Bank, New Jersey. Corporate general and
administration expenses decreased $1.2 million and $0.3 million during the three
and nine months ended July 31, 1995 compared to the same period last year, or
30.7% and 2.9%. As a percentage of total revenues such expenses were 1.6% and
2.0% for the three and nine months ended July 31, 1995 and 3.2% and 1.9% for
the three and nine months ended July 31, 1994.
Interest
Interest expense includes housing, land and lot, and rental properties
interest. Interest expense is broken down as follows:
Three Months Ended Nine Months Ended
July 31, July 31,
------------------ ------------------
1995 1994 1995 1994
-------- -------- -------- --------
Sale of Homes.................. $ 5,347 $ 3,622 $ 14,104 $ 13,783
Land and Lot Sales............. 511 52 586 134
Rental Properties.............. 1,356 1,255 3,950 3,576
-------- -------- -------- --------
Total.......................... $ 7,214 $ 4,929 $ 18,640 $ 17,493
======== ======== ======== ========
Housing interest as a percentage of sale of homes revenues amounted to 3.3% and
3.4% for the three and nine months ended July 31, 1995 and 3.0% and 2.9% for
the three and nine months ended July 31, 1994. The increase of interest as a
percentage of sale of homes revenues is primarily attributable to increased
interest rates on the Company's line of credit.
Other Operations
Other operations consisted primarily of title insurance activities,
miscellaneous residential housing operations expenses, amortization of
prepaid subordinated note issuance expenses, corporate owned life insurance loan
interest, and California housing management operations (see "Land Sales and
Other Revenues" above). During the nine months ended July 31, 1995 other
expenses included California homebuilding management expenses and amortization
of purchased management contracts totaling $1.1 million.
Total Taxes
Total taxes as a percentage of income before income taxes amounted to
32.1% and 23.8% for the three and nine months ended July 31, 1995,
respectively, and 32.7% for the nine months ended July 31, 1994 (three months
ended July 1994 was a loss). Deferred federal and state income tax assets
primarily represents the deferred tax benefits arising from temporary
differences between book and tax income which will be recognized in future
years.
Inflation:
Inflation has a long-term effect on the Company because increasing costs of
land, materials and labor result in increasing sale prices of its homes. In
general, these price increases have been commensurate with the general rate
of inflation in the Company's housing market and have not had a significant
adverse effect on the sale of the Company's homes. However, some material costs
(primarily lumber) have recently increased above the rate of inflation due to
demand being higher than available supplies. A significant risk faced by the
housing industry generally is that rising house costs, including land and
interest costs, will substantially outpace increases in the income of
potential purchasers. In recent years, in the price ranges in which it sells
homes, the Company has not found this risk to be a significant problem.
Inflation has a lesser short-term effect on the Company because the Company
generally negotiates fixed price contracts with its subcontractors and material
suppliers for the construction of its homes. These prices usually are
applicable for a specified number of residential buildings or for a time
period of between four to twelve months. Construction costs for residential
buildings represent approximately 51% of the Company's total costs and expenses.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of l934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
HOVNANIAN ENTERPRISES, INC.
(Registrant)
DATE: August 31, 1995 /S/KEVORK S. HOVNANIAN
Kevork S. Hovnanian,
Chairman of the Board and Chief Executive
Officer
DATE: August 31, 1995 /S/PAUL W. BUCHANAN
Paul W. Buchanan, Senior Vice President
Corporate Controller
5
1000
9-MOS
OCT-31-1995
JUL-31-1995
12,201
0
30,665
0
484,882
575,025
26,429
13,288
715,823
297,116
253,002
237
0
0
165,468
715,823
427,071
466,033
340,783
422,801
0
0
18,640
4,592
1,094
3,498
0
0
0
3,498
0.15
0.15
